Goldman Sachs ex-programmer did not break law, court rules

Sergey Aleynikov did not violate federal theft law when he downloaded the bank's source code

By John Ribeiro

April 12, 2012

IDG News Service

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Former Goldman Sachs programmer Sergey Aleynikov did not violate the National Stolen Property Act and the Economic Espionage Act when he allegedly uploaded proprietary source code to a server in Germany, the US Court of Appeals for the Second Circuit has said.

By uploading Goldman Sachs' proprietary source code from its high-frequency trading (HFT) system to a computer server in Germany in June 2009, Aleynikov stole purely intangible property embodied in a purely intangible format, Dennis Jacobs, the circuit's chief judge wrote in an opinion.

The Judge cited the opinion of the First Circuit that the NSPA does not criminalise the theft of intangible things, and that the theft of purely intangible information is punishable under copyright law and other intellectual property statutes.

Aleynikov subsequently downloaded the source code from the server in Germany to his home computer, and copied some of the files to other computer devices he owned, according to the charges against him.

While recognising the high-value of the source code downloaded by Aleynikov, the Judge however observed that "We decline to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age."

Aleynikov was convicted, following a jury trial in the US District Court for the Southern District of New York, of stealing and transferring some of the proprietary computer source code used in his employer's HFT system, in violation of both NSPA and EEA. He was sentenced to 97 months of imprisonment followed by a three-year term of supervised release, and was ordered to pay a $12,500 fine. Bail pending appeal was denied because Aleynikov, a dual citizen of the US and Russia, was feared to be a flight risk.

The appeals court reversed the conviction on both counts on 17 February this year and indicated that an opinion would follow.

The government had argued that a 1988 amendment that added the words "transmit" and "transfer" in the NSPA reflects an intent to cover generally transfers and transmissions of non-physical forms of stolen property, but the court said in its opinion that the evident purpose of the amendment was to clarify that it covered electronic transfers of money, where money is specifically enumerated as a thing apart and distinct from "goods," "wares," or "merchandise."

The court also upheld Aleynikov's stand that the source code was not related to a product produced for or placed in interstate or foreign commerce, within the meaning of the EEA.

Goldman Sachs had no intention of selling its HFT system or licensing it to anyone, and the enormous profits the system yielded for the company depended on no one else having it, the court observed. "Because the HFT system was not designed to enter or pass in commerce, or to make something that does, Aleynikov's theft of source code relating to that system was not an offense under the EEA," the court observed.

While concurring with the majority opinion, Judge Guido Calabresi said it is hard for him to conclude that in the EEA, Congress, "actually meant to exempt the kind of behaviour in which Aleynikov engaged," and expressed the hope that Congress would state clearly what he believed it meant to make criminal in the EEA.

The US attorney's office in Manhattan could not be immediately reached for comment.